What Is Staking and How Does It Work?
As the world of cryptocurrency continues to evolve, more users are turning to staking as a way to earn passive income on their digital assets. But what exactly is crypto staking, how does it work, and how can you get started?
What Is Staking in Crypto?
Staking is the process of locking up a certain amount of cryptocurrency to support the operations and security of a blockchain network, particularly those using a proof-of-stake (PoS) or delegated proof-of-stake (DPoS) consensus mechanism. In return for participating in this process, users receive staking rewards, usually in the form of additional native tokens.
Unlike proof-of-work (used by Bitcoin), where miners compete to solve complex puzzles which are hard to compute, PoS chains rely on validators who are chosen based on the amount of crypto they "stake" as collateral. This is what makes staking both energy-efficient and potentially rewarding for participants.
How Does Staking Work?
When you stake your crypto, you are either becoming a validator or delegating your tokens to an existing validator. Validators are responsible for confirming transactions and maintaining network integrity. In exchange, they (and their delegators) earn a share of the network’s rewards.
The more tokens staked and the longer they’re held, the greater the potential return. However, rewards vary depending on the project, the staking method, and market dynamics. Common returns (APYs) range from 2% to over 11% depending on the coin and platform.
What Is Liquid Staking?
Liquid staking is a mechanism that allows users to participate in securing proof-of-stake (PoS) blockchains without locking away their capital entirely. Traditionally, when staking, you’re committing tokens to a network validator, making them temporarily illiquid and inaccessible. Liquid staking changes this dynamic by issuing a tradable asset in exchange for the staked tokens, giving users both the ability to earn network rewards and retain liquidity.
When a user stakes tokens through a liquid staking protocol, they receive a tokenized representation of their stake. This new token functions as a proof of ownership over the staked assets and the rewards they generate. Users can hold, trade, or use this token across decentralized finance (DeFi) applications, such as lending, borrowing, or yield farming, without waiting for the original stake to unlock.
In essence, liquid staking unlocks capital efficiency in staking, enabling greater participation in PoS networks while maintaining flexibility and composability in the DeFi ecosystem.
Although Ethereum currently dominates the staking space, the concept of staking emerged before Ethereum implemented it. Several major networks adopted staking earlier. For example, Cosmos introduced staking and validator governance in 2019, Polkadot launched in 2020 with a nominator-validator system to secure the network, and Cardano, Avalanche, and Solana all launched with staking rewards in place well before Ethereum transitioned to proof of stake.
Ethereum originally launched with a proof-of-work consensus model. It began transitioning to PoS with the launch of the Beacon Chain in December 2020, but the full switch occurred during The Merge in September 2022, making staking native to Ethereum. Since then, users have been able to stake ETH directly to earn rewards for helping secure the network.
What Are Liquid Staking Derivatives?
When staking via liquid staking protocols, users receive a token representing their stake which is referred to as a liquid staking derivative or a liquid staking token.
The term "liquid staking derivatives" (LSDs) is commonly used in the crypto space, but it can be misleading. While the word "derivative" typically implies a financial instrument whose value is derived from another asset (like options or futures), liquid staking tokens (LSTs) differ in function and form.
LSTs are not synthetic assets. They are tokenized receipts, often minted 1:1, that represent a staker’s claim on the original asset plus any staking rewards. These tokens are native to the staking mechanism itself and are not designed for leverage or speculative exposure. Their purpose is to provide holders with the flexibility to move, use, or trade staked value across protocols while remaining aligned with the original staking commitment.
For example:
- ETH → stETH (Lido), rETH (Rocket Pool), or LsETH (Liquid Collective)
- SOL → JitoSOL (Jito) or mSOL (Marinade)
These tokens accrue staking rewards and can be transferred, traded, or used in DeFi apps like lending, liquidity provision, or yield farming. Importantly, LSTs preserve the liquidity of staked assets, which are normally locked in traditional staking models.
Despite occasional overlap in terminology, the more accurate and widely adopted term for these assets is Liquid Staking Tokens (LSTs), not derivatives. Mislabeling them as derivatives can cause confusion, especially from a regulatory or technical standpoint.
Types of Staking Methods
There are several ways to stake your crypto, depending on your experience level and risk tolerance:
1. Staking in Wallets
This involves using a crypto wallet that supports native staking features. For example, Trust Wallet allows you to stake coins like ETH, BNB, ATOM, and others directly from your mobile device. It’s a user-friendly way to earn rewards without relying on third parties.
2. Staking on Exchanges
Major centralized exchanges like Binance and Coinbase offer staking services directly through their platforms. While these platforms are centralized, they recognize the advantages of DeFi-native staking and have entered the space by issuing their own LSTs such as WBETH and cbETH. These options are ideal for beginners, offering a simple setup, auto-restaking, and flexible lock-up periods.
3. Staking on DeFi Platforms
If you’re more experienced and ready to stake directly within DeFi, there are a wide range of options available. We’ll explore more advanced staking strategies in the next section.
Overview of Top Liquid Staking Platforms
The first major liquid staking platform was Lido, launched in late 2020 to support Ethereum’s Beacon Chain. Lido introduced stETH (Lido Staked ETH), a token representing staked ETH that accrues staking rewards and is widely accepted across DeFi protocols.
Lido also introduced wstETH (Lido Wrapped Staked ETH), which is a non-rebasing version of stETH. Unlike stETH, which increases in balance as staking rewards accrue, wstETH maintains a fixed balance while the value of each token increases over time. This makes it more compatible with DeFi platforms that cannot handle rebasing tokens.
Lido is the most widely adopted liquid staking protocol and remains the largest by total value locked (TVL). It gained traction due to its early market entry, wide DeFi integration (used across Aave, Curve, MakerDAO, etc.), and backing from prominent Web3 VCs.
Rocket Pool is not just a staking platform but also an infrastructure provider. It pioneered decentralized liquid staking by allowing anyone to run a node with only 16 ETH and RPL tokens as collateral. Besides that, regular users can stake ETH and receive rETH. The protocol has earned trust among decentralization advocates and steadily grown, integrating with over twenty DeFi platforms.
Binance’s WBETH (Wrapped Beacon Staked ETH) token represents staked ETH plus it accumulates ETH staking rewards by growing in value in relation to ETH, even when it is used in Binance products or DeFi Projects. It can be utilised not only on Binance but across a variety of DeFi platforms and has deep liquidity. It is currently in the second position after Lido’s stETH by TVL.
Liquid Collective offers LsETH targeting institutional users. Designed around compliance, on-chain auditing, and enterprise-grade security, the protocol addresses concerns around on-chain risk and regulatory scrutiny. LsETH Can me minted on a variety of platforms but it involves KYC/AML checks.
StakeWise, currently among the top liquid staking providers for Ethereum, issues osETH, which grows in value as staking rewards accrue. Its unique differentiator is that users can mint osETH through specific staking pools (Vaults) backed by chosen validators, instead of through a single universal staking pool
ListaDAO is building a large liquid staking platform for BNB, offering slisBNB. Its differentiator is that it positions itself firstly as a Collateralized Debt Position (CDP) protocol by enabling borrowing of a stablecoin, lisUSD, using slisBNB LST and other assets as collateral.
Staking on Solana has been gaining momentum, driven in part by key players innovating around MEV (Maximal Extractable Value) capture and broader DeFi integrations.
Marinade Finance is the first liquid staking protocol on Solana and issues mSOL. The platform automatically delegates stake across a decentralized set of validators to promote network health and decentralization. mSOL is widely adopted and integrated across more than 60 Solana-based DeFi platforms.
Jito offers JitoSOL, a liquid staking token that stands out by capturing MEV rewards in addition to standard staking yields. By working with specialized validators that optimize block production, Jito enhances staking returns and has quickly become one of the top choices for yield-maximizing users in the Solana ecosystem.
Binance also provides a liquid staking solution for SOL through bnSOL (or BNSOL). While it offers convenience for Binance users, it remains custodian-controlled and is less integrated into permissionless Solana DeFi compared to decentralized alternatives.
Why Liquid Staking Matters
Liquid staking addresses a core limitation of PoS systems: the illiquidity of staked assets. By enabling stakers to remain active participants in the broader DeFi ecosystem, it reduces opportunity costs and encourages more users to help secure blockchain networks.
Additionally, liquid staking boosts capital efficiency for both retail and institutional participants. It turns previously idle capital into a productive asset that can simultaneously earn staking rewards and be deployed in yield strategies or other financial instruments.
Whether you're a long-term holder seeking passive income or a DeFi-native user optimizing capital across platforms, liquid staking offers a bridge between network participation and liquidity—a foundational innovation in decentralized finance.
The Future of Staking
Crypto staking is one of the most accessible and sustainable ways to grow your assets in the blockchain ecosystem. Whether you're staking in wallets like Trust Wallet, on centralized platforms like Binance, or Coinbase, or diving into the world of DeFi staking with Lido or Jito, the key is to understand your options and risk profile.
Staking not only helps you earn rewards but also strengthens the networks behind your favorite crypto projects making you an active participant in the future of decentralized finance. But as with any investment, do your research and start small.
